Sanctions

Habib Soussou, Alfred Yekatom and Oumar Younous, as shown on the Recent Actions page of the Treasury Department.

Sanctioning individuals is relatively recent phenomenon. Up until several years ago, only nation-states received sanctions. And then individuals and specific business concerns started to be sanctioned. While the use of sanctions in this manner seemed tenuous at first, the success of sanctions against Russian President Vladimir Putin’s cronies solidified the practice and they are here to stay.

Who do you think should be taken off of the sanctions list? Why?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE.

Assuming your bank performs transactions for people with international connections, Americans are barred from doing most types of transactions with Iran interests because of the economic sanctions. There are several sets of economic sanctions on Iran and only the the set that were implemented because of the nuclear activity were lifted. Practically, very little has changed for your bank, so, very little has changed for your compliance department.

Even, still, the elation alone is building interest in investment and trade activity with Iran. American entities with subsidiaries in Europe are likely to try to get around these sanction by claiming European sovereign rule. But this only works if the subsidiary can prove that it is not controlled by the American umbrella.

There’s no way to prove this. Just the fact that the subsidiary is a subsidiary and not a joint venture or minority interest deems it American jurisdiction on transactions because the net income is accounted for here in the States.

Minority interest is where things get tricky. If a client is doing business with an entity which has American minority interests and does business with Iran, then that’s territory that requires some legal analysis. The reason for the complication is even though there are many situations where Americans may have minority interests in European entities that will do business with Iran, one of those entities could be a fund that is specifically initiated to do that business. Wealth Americans have access to foreign markets without working through the American markets. It is possible that an American investor can buy into a Iran direct investment fund in London using his British assets. If he is able to do this, then he adds a legal entity layer. He will own a majority interest in an entity that is investing into a fund as a minority investor.

Your department will have to decide whether American jurisdiction applies to ownership of legal entities or if business will benefit the American.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.

On the surface, sanctions on individuals seem easy. Your bank is given a list, your bank looks through information about clients and stops all business with those who are on the list.

Hahaha, yeah, right. Then there are their related parties, some of whom you need to sanction as well because they can be intermediaries. Others you need to monitor because they are legitimate businesses but the individual has access to making transactions. Oh, and there are subsidiaries and parent companies of the monitored company. And then there are possible new agents for the individual, like an assistant. Then there are all of the accounts that have in some form or another put money into or taken money out of all of the related accounts. And then there are your bank’s vendors and suppliers, who all need to comb through their accounts so that they don’t do transaction through your bank. Correspondent account for foreign banks will also need to clamp down on transactions of suspiciously-related accounts. And then there are new accounts being created by any number of parties who might be providing transaction services for the sanctioned individual. And then there are those accounts that come from jurisdictions that do not enforce sanctions from other jurisdictions, from markets that do not allow reporting on account information, from banks with no physical presence…

You get the idea. The web of research required to identify all of the entities that require a decision on grows rapidly. Imagine doing this for a nation. To make this easier, Thomson Reuters has created a Russian Sanctions Tracking Service. This is supposed to help identify all related parties. Reuters is leveraging its own massage database.

This is good but no compliance department should rely on this. There is no way such information could be updated quickly. Hours, even minutes, matter. In today’s world where an account could be setup remotely online, an account could be created and start making transactions through it, completing all of the necessary transactions for the sanctioned individual before an update of the list is published.

Sanctions programs should have to work closely with the bank’s Fraud Investigation Units and Suspicious Activity Reporting groups to stay on top of the ever changing sanctions environment.

Natalia Polanskaya, Prosecutor General of Crimea

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book Money Laundering: How criminals got paid and got away.

Office of Foreign Assets Control has been highly effective. It has blocked $2.3 Billion worth of cash and property in the US, much of it Iranian.

credit Ropes & Gray

OFAC published its annual Terrorist Assets Report for 2014 and there are some interesting things in there. For example, it lists the top eight terrorists funds that were blocked. Al-Qaida is at the top. Because this report focuses on sanctions on terrorism and not other types of sanctions, Russia is not at the top.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How criminals got paid and got away.

In may of 2014, Office of Foreign Assets Control (OFAC) imposed sanctions on trade with Syria, including books and other works by Syrian authors. The sanction on Syrian authors include Syrian nationals in the United States. Pen American Center and other publishers and author groups opposed this move as an infringement on the First Amendment. Last week, OFAC amended the sanction to excluding trade involving publishing. This was a similar move made a decade ago when OFAC amended sanctions on Cuban, Iranian and Sudanese transactions “necessary and ordinarily incidental” to publishing and marketing written works from those regions.

Rosie Malek-Yonan, Assyrian Authoer

While OFAC’s amendment makes obvious sense, so does its pre-amended sanction. Trade involves money and the transactions of money in exchange for expression could lead to funding terrorism because “expression” could mean a whole lot of things. Even if trade didn’t involve money or things of monetary value, publishing could be a method of providing communication for terrorists. Of course, providing communication paths is not unique to publishing. Messages could be attached to invoices as well. And then there are the great number of communications devices and software available for free.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How criminals got paid and got away.

On Monday, January 26, Associations of Certified Anti-Money Laundering Specialists (hereon ACAMS) held its Third Annual AML Risk Management Conference at The Conrad Hotel in downtown New York. Over the course of this week, summaries and takeaways from the key notes and panel discussions will be shared in this blog.

Risk Assessment is key to a successful Compliance Program. This panel discussion talks about the issues surrounding the development, implementation, execution, review and management of the various risk assessments necessary. Here are ten takeaways from this session:

In large financial institutions, multiple risk assessment could be performed on clients for different lines of businesses. Good communication between the two risk assessment programs regarding the same client is key to reducing risk assessment friction, cost overruns, and addressing the uniqueness of each client.

Number of Suspicious Activity Reports (SARs) is not a good measure of the need for additional elements in Risk Assessment because it is not an indicator. however, it might be one of the good places to start for developing the risk assessment when looking for issues.

Lower level executives are still surprised by the requirement to attend compliance training for them, not just for their staff.

Big firms are highly aware of the need for training and compliance since regulators are primarily focused on big firms. It is the medium size firms that might be lacking in Compliance awareness.

Many regulators want to see Audit Reports and Risk Assessments as their starting point in an exam, review or an investigation.

Dealing with businesses within a firm is harder than dealing with AML or Sanctions because businesses often are not as aware of regulatory risks as AML or Sanctions are.

Geographic risks cannot be painted in broad strokes. An example: A client regulated in Hong Kong is likely very low risk while client in Hong Kong but not regulated are likely very high risk.

Technology is great for efficiency but not always good for developing methodology or for troubleshooting risks, even for those who are technologically savvy.

Cooperative environment is the best environment for getting cooperation in Risk Assessment, as with anything else. Cooperative environment should be the goal of the whole firm, not just with Compliance.

Regulators are starting to pin down senior leaders to their risk appetite, asking for explicit declarations. Firms generally shy away from this as much as possible.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.
He tweets @MoneyCompliance

On Monday, January 26, Associations of Certified Anti-Money Laundering Specialists (hereon ACAMS) held its Third Annual AML Risk Management Conference at The Conrad Hotel in downtown New York. Over the course of this week, summaries and takeaways from the key notes and panel discussions will be shared in this blog.

Adam Szubin is the exiting director of Office of Foreign Assets Control (OFAC) in the Department of Treasury. Soon, he will be the acting under secretary for Terrorism and Financial Intelligence, another office in the Treasury.

Szubin has a history of speaking at Financial Crimes-related conferences because of his long held position as the director of OFAC. Applauded members of ACAMS for doing their best to make Anti-Money Laundering profession a serious endeavor. Then he alerted to three nuanced risks for the profession.

CUBA was his first concern. As the United States lifts nearly all of its sanctions against the communist island nation this year, it opens up another route for corruption to take place.

RUSSIA was his second concern. OFAC’s Magnitsky Sanctions List enumerates targets explicitly, but not all activities are sanctioned and not all enumerated have been sanctioned the in the same manner. The theme of this sanction is debt and equity financing, or the limit thereof. This is a target on a crucial source of currency for Russia in order for it to succeed. The capital markets have also worked against Russia by lowering the price of oil, the primary source of revenue for Russia. It’s an additional wind behind OFAC’s sanctions.

IRAN was his final enumerated concerns. Even more nuanced than the previous two examples. Iran’s domestic politics indicate the type and length to which the regime is willing to evade western powers to fund terror.

Transparency is the key to successful sanctions compliance. Breach of compliance is often accidental. Finding breaches are difficult because often the breaches are in omnibus accounts. Also global trade cannot stop for complex business areas, like re-insurance of trans-ocean ships.

Because of the human nature of business, financial crimes will occur in some form or another. Professionals Certified Anti-Money Laundering Specialists greatly reduce the efficacy of criminal activities.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.
He tweets @MoneyCompliance